Speaking at the South African Reserve Bank’s (SARB’s) bi-annual Monetary Policy Review briefing earlier this week, Dr Christopher Loewald stated that early projections indicate that the 21-day lockdown, aimed at curbing the spread of the coronavirus, could see around 370 000 job losses and 1 600 businesses being declared insolvent in South Africa.
The Covid-19 lockdown may directly and indirectly result in a 2%-4% contraction of the economy in 2020.
Ratings agencies and the weakening rand
Ratings agency Moody’s downgraded South Africa’s credit rating to junk or sub-investment grade on Friday 27 March.
Subsequently, Fitch downgraded South Africa’s Long Term Foreign-Currency Default Issuer Rating (IDR) from BB+ to BB with a negative outlook. The agency is forecasting a 3.8% contraction for the South African economy in 2020.
As a result, the rand has plummeted to nearly R20/dollar, but has since recovered to R18,65.
Big business in SA to forgo bonuses
South Africa has looked to big businesses during this time to make every effort to keep their staff.
Woolworths yesterday announced its board and executive teams will forego up to 30% of their fees and salaries over the next three months.
The SARB’s Prudential Authority (PA) has asked commercial banks to put a freeze on paying out ordinary dividends or bonuses to executives this year.
IMF versus ANC
Finance Minister Tito Mboweni said last month that South Africa would approach the IMF or World Bank for help fighting the coronavirus “if we run out of finance for health interventions”. However, the ANC, the SACP and Cosatu have made it clear that they do not agree – and that South Africa needs to “safeguard [its] democratic national sovereignty”.
Asking multilateral institutions, especially the IMF, for cash is deeply unpopular with a radical faction in the ANC and trade unions the party uses to rally support ahead of elections, partly because of the stringent conditions that can accompany IMF lending programmes.